David Samra, Artisan Partners: Long Aker Solutions

We attended the Value Investor Conference in London, which took place on May 22nd 2014. Below are notes from the presentation by David Samra of Artisan Partners (note: These notes are what the presenter said to the best of our knowledge, but there may be some inaccuracies). Also see: Andrew Cormie At London Value Conference: Value in Asia and Mason Hawkins on The Importance of Terrific Partners and Mason Morfit, ValueAct Capital – Shareholders in the Boardroom

David Samra, Artisan Partners: Long Aker Solutions

David Samra, Artisan Partners – Points of Leverage

Ideas:

Cash:

  • 15% portfolio is in cash, highest their mandate allows

David Samra: Samsung Electronics Co. Ltd. (LON:BC94) (KRX:0059935)

  • V cheap on any statistical measure, obvious undervaluation even versus Apple Inc. (NASDAQ:AAPL) is glaring.
  • Valuation @ KRW 1,343,000/share: 0.7x FY13 Rev, 4.2x FY13 Op income, 4.1x FY14 Op income, 6.6x P/E 2013
  • Strong balance sheet with significant net cash (FY13 cash represented 24% of mkt cap)
  • Business Quality:

o   Global leader smartphones, semi’s and other electronic components

o   Operates in 3 main areas – Smartphones (68% FY13 Op income), Semi’s (19% FY13 OI), Panels (8% FY13 OI)

o   Smartphone value proposition of hardware + software + processor = high margins

o   Other businesses give enough comfort even if smartphones go horribly wrong over next few yrs

  • Mgmt:

o   Highly thorough l-t thinkers

o   Committed to growing and preserving shareholder value

David Samra: Aker Solutions ASA (FRA:KY7) (OTCMKTS:AKKVF)

  • Provides equipment to large oil and gas co.s
  • Long-standing history mainly in the North-Sea
  • Valuation @ Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) 93.50/share: 0.6x FY13 Rev, 11.6x FY13 Op income, 8.4x FY14 Op income
  • Very strong balance sheet, FY14 ending debt net of cash and financial assets 54% of EBIT (pro forma for announced divestments
  • Thesis:

o   It hasn’t been v well managed but now it’s starting to be v well managed.

o   Mgmt is streamlining the co. to focus on lower capital intensity businesses, which will get the rtn on cptl up

o   Since preparing the presentation mgmt. has announced a demerger of 4 of its high cptl intensity assets

o   Significant margin expansion opportunity – when compared with competitiors (NOV, FMC, Wood Group), segment margins are lower

o   High barriers to entry industry given the products they provide in the deepwater environment

o   Think the assets are extremenly valuable

  • Management:

o   From a corp governance standpoint, there is high insider ownership

o   Significant insider buying above today’s share price

David Samra: The Chubb Corporation (NYSE:CB)

  • Leading provider of property and casualty insurance worldwide.
  • Key Metrics @ USD 89.30/share: 1.5x 2013 TBV, 10.7x 2013 P/E, 2013 Premiums Earned 12,066M, Shareholder Equity of 16,097M
  • Balance Sheet – Premiums to Equity of 0.75x
  • Investors might say the investment has already played out having benefitted not only from a revaluation of PB multiple, but also significant PB growth
  • Business Quality:

o   Strong reputation as one of the most trusted brands giving them pricing power

o   Average 10 year ROE of 14.9%

  • Mgmt:

o   Long track record of underwriting discipline, balance sheet prudence and shareholder value creation

o   Periodically return excess capital to shareholders via share repurchases

  • Thesis:

o   Highly profitable and disciplined underwriting co.

o   Key here is to look at shareholder equity vs premiums earned – sort of a short hand measure of financial strength.

o   Given the lines of business the co. is in, this level is v high, meaning the co. is under levered and will be slowly but surely returning cptl to shareholders.

o   More importantly when the insurance environment returns to a place where the co. can employ this capital aggressively = see a significant growth in amt of premiums written

o   Thinks co. should trade above 2x book value

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